WeChat Pay and Alipay are now targeting the 3 million Chinese travelers visiting the U.S. every year

As their domestic market is reaching maturity, the two Chinese mobile payment services are looking toward new horizons. But the ongoing trade war could dampen their hopes.

In February, Alipay, a Chinese mobile payment app that belongs to the Alibaba Group, forged an alliance with Walgreens, a U.S. pharmacy store chain. Alipay is now handling transactions in 3,000 Walgreens stores in the U.S., and is eyeing to reach 7,000 locations by April. It isn’t the first push made by Alibaba to expand its mobile payment system to the U.S. market. In 2017, the company partnered with First Data, a leading payment solutions provider, which was followed by a deal with the bank JP Morgan Chase. These relationships are designed to get Alipay widely accepted as a form of payment at as many U.S. merchants as possible.

But Alipay isn’t the only Chinese mobile payment app trying to enter the U.S. market. In July 2018, Tencent, a powerful Chinese multinational that owns WeChat, an application whose mobile payment service, WeChat Pay, is Alipay’s biggest rival in China, announced that it would step up its efforts to expand its payment service to the U.S. too. Last year, both companies partnered with Stripe, an online payment processing startup, and with Citcon, a Silicon Valley-based mobile payment and marketing platform that connects global merchants with Chinese consumers. Both companies are also expanding into Canada. Last November, the supermarket chain 7-Eleven announced that it would start accepting the two services at 35 stores in Toronto and Vancouver.

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China, a mobile-first market

Mobile payment is much more prevalent in China than in the U.S. and Europe. WeChat Pay and Alipay respectively have more than one billion and 900 million actives users, most of whose are based in China. This tremendous success (as a comparison, Apple Pay has about 127 million active users) can be explained by two specificities of the Chinese market. First of all, credit cards never really took off in China, for both cultural and technical reasons (China's state-owned banks are notoriously difficult to deal with). Secondly, China is a mobile-first market, where citizens use their phone, rather than a computer, to access the internet. In 2016, 66% of all online payments were mobile-based, and in 2018, more than 45% of the population used mobile payments. People use their phone to pay online, but also at the supermarket, in restaurants, to buy a beer, and even to tip street musicians. But the Chinese mobile payment market is now about to reach maturity, and the two rivals, WeChat Pay and Alipay, are thus exploring new horizons to sustain growth.

In 2016, mobile payments in China reached $8.6 trillion compared to only $63 billion in the US

But rather than convincing North American consumers, who have been slowly adopting the technology, they are targeting Chinese tourists visiting the U.S. and Canada. In 2016, mobile payments in China reached $8.6 trillion compared to only $63 billion in the US – a difference of nearly 140 times. The North American market is also really competitive, with companies such as Apple Pay, Google Pay, Samsung Pay and PayPal already fighting to convince users.

Targeting Chinese tourists

For the two Chinese mobile payment companies, targeting Chinese tourists appears as a much easier option. And a lucrative one. According to a 2017 report from the U.S. Department of Commerce, about 3 million Chinese tourists visited the U.S. in 2016, making it the most visited destination outside of South-East Asia for Chinese travelers. They spent about $33 billion, an increase in spending of 9% over the previous year. Chinese students are also massively present in the US, where they account for 30% of all international students.

After China, can they change consumer behaviors in the U.S., and make Americans massively use mobile payments? We’ll see.

Alibaba and Tencent have therefore also been targeting the hotel industry. In August 2018, WeChat made a deal with Caesar Entertainment, a hotel and casino chain. The Luxe Rodeo Drive Hotel and the Luxe Sunset Boulevard Hotel, both based in Los Angeles, have also recently started accepting payment made on the two apps. “Both WeChat Pay and Alipay are trying to expand their user base, and as domestic growth is, of course, limited, they are now targeting Chinese tourists visiting North America. But as payment systems are still very local, they need to partner with local providers such as Stripe. It will also serve as a testing ground: after China, can they change consumer behaviors in the U.S., and make Americans massively use mobile payments? We’ll see,” says Howard Yu, co-author of the Harvard Business School Case: WeChat, A Global Platform.

But both companies will also have to operate in difficult conditions. A trade war is currently going on between China and the U.S., as the American president is accusing the country of unfair trade policies. Some companies, such as Chinese communication giant Huawei, have already suffered from it. The two giants will therefore have to operate very carefully, and hope for the situation to improve soon.